The Private Equity Firms Closing 80 Percent Fewer Transactions (But Outperforming Everyone)
Most private equity firms see 500+ transactions a year.
They review pitch decks. They attend banker meetings. They run models. They spend months in diligence.
And then they forfeit the transaction—or worse, they close it and regret it.
Meanwhile, a small group of PE firms see fewer transactions, move faster, and consistently outperform.
What’s the difference?
They treat sourcing and screening as a system, not an event.
The truth is, returns are determined long before a transaction closes. The quality of sourcing and the discipline of screening decide whether a firm spends its time underwriting winners—or chasing noise.
The framework top-performing funds use:
1. Build Intentional Sourcing Channels
Strong firms diversify sourcing across proprietary, intermediary, and thematic channels.
→ Proprietary sourcing: Founder relationships built years in advance, direct outreach to family businesses, industry-specific networking
→ Intermediary-led transactions: Selective relationships with boutique banks, business brokers, accounting firms who understand the mandate
→ Thematic & data-driven sourcing: Roll-up setups in fragmented industries, regulatory-driven tailwinds, succession-driven seller dynamics
Consistency beats volume. A focused list of 50-100 companies in a target sector often outperforms broad outbound efforts.
2. Define a Clear Mandate
Screening fails when mandates are vague.
A strong mandate answers:
Target EBITDA range
Industry and sub-sector focus
Business model preferences
Geographic constraints
Leverage tolerance
Value creation levers (valuation, M&A, ops, tech)
The clearer the mandate, the faster transactions can be disqualified—and the more credibility the firm builds with sellers and intermediaries.
3. Apply a First-Pass Screen (Rapid)
Initial screening should take 30-60 minutes, not weeks.
Key first-pass questions:
Does this fit the fund’s size and sector?
Is the business profitable with defensible margins?
Is customer concentration manageable?
Is leverage reasonable at entry?
Is there a credible exit path?
If a transaction cannot pass these basics, it should not consume further resources. Speed at this stage is a competitive advantage.
4. Focus Early on Quality of Earnings Drivers
Before deep diligence, assess what really drives earnings quality.
Early red flags:
Non-recurring revenue masking declining core growth
Heavy reliance on a single customer or supplier
Aggressive revenue recognition
High working capital volatility
EBITDA adjustments that inflate reality
Top firms think like buyers on day one, not sellers pitching upside.
5. Underwrite Value Creation, Not Just Valuation
A strong transaction isn’t just about buying cheaply—it’s about knowing how value will be created.
Common value creation levers:
Valuation optimization
Operational efficiency
Professionalizing management
Add-on acquisitions
Technology enablement
Geographic expansion
If value creation depends solely on multiple expansion, the transaction is likely mispriced.
6. Maintain a Disciplined IC Process
IC should function as risk filters, not rubber stamps.
Standards include:
Standardized screening memos
Clear downside cases
Sensitivity analysis on leverage and margins
Explicit reasons for not doing the transaction
The goal isn’t to kill transactions—but to sidestep avoidable mistakes.
7. Track Flow Metrics
Top funds measure sourcing results with the same rigor as portfolio returns.
Useful metrics:
Transactions reviewed per closed acquisition
Proprietary vs brokered ratio
Time from first look to LOI
Reasons transactions are rejected
Post-close results vs underwriting
Over time, this data sharpens both sourcing and screening judgment.
The Real Edge
Strong private equity returns are built through:
Consistent sourcing
Rapid, disciplined screening
Clear mandates
Repeatable decision-making
Firms that master these processes don’t just secure more transactions—they secure better ones.
In private equity, the real edge isn’t seeing more transactions. It’s knowing which ones matter.
How Sutton Capital Helps You Navigate the Private Sectors
Understanding sourcing and screening frameworks is one thing. Actually building the discipline, network, and judgment to execute them—whether as an associate, VP, or fund manager—is another.
Whether you’re trying to break into private equity, refine your diligence skills, or build your own fund with institutional-grade processes, you need more than theory.
At Sutton Capital, we guide ambitious individuals through:
✅ Practical hands on training
✅ Academic Theory & Modeling Lectures
✅ Networking with Institutional Allocators
✅ 1-1 Coaching on Switching Careers into Private Equity, Venture Capital, and Banking or Launching a Fund
We’ve helped busy professionals build the skills and network needed to switch careers into private equity, VC, and banking—or learn how to launch their own fund.
Book a Planning Session with Our Team
To Your Growth,
The Sutton Capital Team
P.S. — The firms that outperform don’t just see more transactions. They’ve built systems that let them say “no” faster—and “yes” to the right ones with conviction. That’s the difference.